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Crude Struggling at 14-Week Lows on Oversupply Concerns

West Texas crude has steadied in the Monday session, following sharp losses last week. In North American trade, WTI crude futures are trading at $48.38. Brent Crude is trading at $51.36, as the Brent premium stands at $2.98. It’s a quiet start to the week, with no releases on Monday. On Tuesday, the sole release is US PPI, with the markets expecting a weak gain of 0.1%.

Last week was one to forget for WTI crude, as the commodity plunged 8.7 percent. On Monday, WTI crude briefly dropped below the $48, for the first time since November 30. Will the downturn continue this week? Crude is under strong pressure as crude stockpile reports continue to point to surpluses. Last week, the Crude Inventories soared to 8.2 million barrels, well above the forecast of 1.1 million. US crude has posted surpluses in 11 of the past 12 weeks, reflective of increasing US shale production. Most of the surpluses have been much higher than the forecasts, as the markets continue to underestimate the level of crude stockpiles. The ongoing surplus has put a damper on OPEC’s hopes to raise prices, as the cartel cut production levels at the beginning of January. Compliance with the agreement stands at an impressive 94% and OPEC had high hopes of pushing crude to $60 or more, but oil prices have actually declined in 2017.

It’s full steam ahead for the US economy, buoyed by a red-hot labor market. On Friday, Nonfarm Payrolls sparkled with a gain of 235 thousand. This easily beat the estimate of 196 thousand. The strong release makes it a virtual certainty that the Fed will raise rates by a quarter-point on Wednesday. Although a rate hike has been priced in by the markets, there have been disappointments in the past, so a rate move will likely give the dollar a boost against its major rivals, such as the euro. The solid job numbers also give President Trump a much-needed boost. Trump is under pressure to present an economic agenda, but the markets won’t mind giving him some additional breathing room with the economy performing well.

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